OT - Financial mess 101 ($700 billion bailout)

[Naples39]

Does anyone know why the Republicans are so against passing Obama's Stimulus Bill? Is there really that much "pork spending" in there or is this just partisan crap?

Part of it is partisan as Republicans want less spending and bigger tax cuts, which is just republicans standing up for republican ideals.

The other part (and probably the bigger part) is that a huge amount of the bill spends money on programs that, at best, have a tenuous relationship to stimulating the economy, or will not stimulate the economy for a few years thus belying Obama's call to pass the bill ASAP instead of allowing time for review and revision.

[Feanor]

What are these programs that have absolutely no relationship to stimulating the economy? Unless the money spent on them is spent outside of the country, I don't see how they have can absolutely no relationship.

[wco81]

Republicans are pushing for top-weighted tax cuts. IOW, the same policies they pursued under Bush, which resulted in tepid job creation before the crisis.

http://www.slate.com/id/2210570/

To them, spending government funds to goose the economy is unacceptable, not just because of the possibility of poor execution —i.e., pork. No, many are rejecting it as a matter of principle. Even though several Republican governors are pleading for assistance in the form of federal spending, Washington Republicans are saying no.

Newly elected Republican National Committee Chairman Michael Steele laid down the party line on CNN: "Let's get this notion out of our heads that the government create jobs. Not in the history of mankind has the government ever created a job." Sen. Jim DeMint of South Carolina succinctly summed up his opposition: "We can't keep spending and borrowing to get us out of a recession." Sen. Kit Bond of Missouri concedes that some government spending—such as spending on highways—can create jobs but thinks that spending on mass transit or alternative-transit infrastructure isn't stimulative.

These claims are so peculiar that it's hard to know where to begin. Contrary to Steele's assertion, in the history of mankind, the government has in fact created many, many jobs (including the one he held for a few years: lieutenant governor of Maryland). Today, government accounts for 22.5 million of the nation's 135.5 million payroll jobs, or 16.6 percent. Those numbers include people who work for the federal, state, and local governments—doctors and nurses in public hospitals and teachers at elementary schools and public universities. Government also has created—and continues to create—all sorts of private-sector jobs, for defense contractors, the aerospace industry, medical-device makers, real estate companies, and construction firms. The economy of the Washington, D.C., area has boomed in recent decades not so much because the federal government has expanded its payrolls massively but because private government contractors have been thriving.

Jim DeMint proposed an amendment to the Senate stimulus bill, which would have converted all $800 billion into tax cuts and no spending at all.

36 GOP Senators voted for that amendment.

The GOP House members have a similar idea and claim that their plan would create 6 million jobs.

We've tried these tax cuts and there were maybe 5 million jobs under the first 6.5 to 7 years of the Bush administration before we started losing 2.5 million in the last year.

Under 8 years of Clinton, there were 22 million jobs created, without the top-heavy tax cuts that the Republicans are still calling for.

[RobVarak]

Republicans are pushing for top-weighted tax cuts. IOW, the same policies they pursued under Bush, which resulted in tepid job creation before the crisis.

http://www.slate.com/id/2210570/

To them, spending government funds to goose the economy is unacceptable, not just because of the possibility of poor execution —i.e., pork. No, many are rejecting it as a matter of principle. Even though several Republican governors are pleading for assistance in the form of federal spending, Washington Republicans are saying no.

Newly elected Republican National Committee Chairman Michael Steele laid down the party line on CNN: "Let's get this notion out of our heads that the government create jobs. Not in the history of mankind has the government ever created a job." Sen. Jim DeMint of South Carolina succinctly summed up his opposition: "We can't keep spending and borrowing to get us out of a recession." Sen. Kit Bond of Missouri concedes that some government spending—such as spending on highways—can create jobs but thinks that spending on mass transit or alternative-transit infrastructure isn't stimulative.

These claims are so peculiar that it's hard to know where to begin. Contrary to Steele's assertion, in the history of mankind, the government has in fact created many, many jobs (including the one he held for a few years: lieutenant governor of Maryland). Today, government accounts for 22.5 million of the nation's 135.5 million payroll jobs, or 16.6 percent. Those numbers include people who work for the federal, state, and local governments—doctors and nurses in public hospitals and teachers at elementary schools and public universities. Government also has created—and continues to create—all sorts of private-sector jobs, for defense contractors, the aerospace industry, medical-device makers, real estate companies, and construction firms. The economy of the Washington, D.C., area has boomed in recent decades not so much because the federal government has expanded its payrolls massively but because private government contractors have been thriving.

Jim DeMint proposed an amendment to the Senate stimulus bill, which would have converted all $800 billion into tax cuts and no spending at all.

36 GOP Senators voted for that amendment.

The GOP House members have a similar idea and claim that their plan would create 6 million jobs.

We've tried these tax cuts and there were maybe 5 million jobs under the first 6.5 to 7 years of the Bush administration before we started losing 2.5 million in the last year.

Under 8 years of Clinton, there were 22 million jobs created, without the top-heavy tax cuts that the Republicans are still calling for.

Oh cool, we've repealed the no politics ban?

In the interest of fairness, WCO, you may want to remind the class that all that job creation in the Clinton adminstration happened after Congress shot down his very own "stimulus" package and after killing off his socialized health care scheme.

How's this blast from the past:

"The minority leader showed that playing politics is a lot more important than putting people to work," said George Stephanopoulos, the White House communications director. "The real losers here are the hundreds of thousands of Americans who won't get jobs this summer and beyond, because a minority of Republicans put politics before people."

[Naples39]

Apologies if I tread into 'politics.'

I was really trying to simply answer Jack's question succinctly and as non-partisan as possible. Obviously I failed at that task.

I honestly thought classifying much of the spending as non-stimulative was not really disputed, as my understanding was that the debate was over just how much of it was non-stimulative.

I edited my post slightly and will refrain from responding any more.

[Feanor]

Any goverment spending in the U.S. economy is at least somewhat stimulative because of second-round spending, multiplier effects, import-intensity, which is also why having government buy things is infinitely preferable to tax cuts (of which a significant percentage would be saved) when the demand-side of the economy in such bad shape.

[RobVarak]

My tongue is pretty much in cheek, as I this thread is every bit as much political as it is economic. In any event, here are some interesting links.

Debate between Krugman and some Chicago School folks:

http://freakonomics.blogs.nytimes.com/2 ... /#comments

Gary Becker on the stimulus: http://online.wsj.com/article/SB123423402552366409.html

Interesting chart of job losses in recent recessions: http://curiouscapitalist.blogs.time.com ... last-five/

Detailed analysis of the banking side of things. Not pretty, obviously: http://blogs.cfr.org/setser/2009/02/10/ ... ic-assets/

(Includes this monster line: But even if the banks existing equity investors take a large share of the losses on these assets, I suspect that the US will be lucky if can escape from the current mess with a net cost (meaning the net loss once toxic assets and toxic banks have been sold off) to the taxpayer of less than 5% of GDP … )

[Feanor]

Interesting links.

[bdoughty]

Apologies if I tread into 'politics.'

I was really trying to simply answer Jack's question succinctly and as non-partisan as possible. Obviously I failed at that task.

I honestly thought classifying much of the spending as non-stimulative was not really disputed, as my understanding was that the debate was over just how much of it was non-stimulative.

I edited my post slightly and will refrain from responding any more.

Dude, you are not to blame. Jack brought politics into this. Apparently he can't leave well enough alone. Sweet way of getting a dig in there also with the could it be "partisan crap."

[JackB1]

Dude, you are not to blame. Jack brought politics into this. Apparently he can't leave well enough alone. Sweet way of getting a dig in there also with the could it be "partisan crap."

What did I do? The Stimulus Bill doesn't fall under "Financial Mess 101"?
If it doesn't, then I apologize. I simply wanted to get updated on the recent Stimulus bill and why there is Rep. opposition to it. I haven't been following it to closely in the last few days and wanted some insight. Thanks Rob, Naples & Wco for the good info.

Saying I brought "politics" into this thread is like saying A-Rod brought cheating into Sports.

[bdoughty]

http://www.digitalsportspage.com/module ... ic&t=13481

3) No overtly political posts in non-political threads.

There will be bans if these rules aren't followed.

I simply wanted to get updated on the recent Stimulus bill and why there is Rep. opposition to it. I haven't been following it to closely in the last few days and wanted some insight. Thanks Rob, Naples & Wco for the good info.

Did your google break? Honestly are there not a million other places where you can get this information, in a much quicker fashion?

Saying I brought "politics" into this thread is like saying A-Rod brought cheating into Sports.

[JackB1]

Did your google break? Honestly are there not a million other places where you can get this information, in a much quicker fashion?

No "my google didn't break". I like to hear opinions of the guys here.
Anything wrong with that? You could apply your statement to just about any question that is brough up on these forums, couldn't you?

[wco81]

In the interest of fairness, WCO, you may want to remind the class that all that job creation in the Clinton adminstration happened after Congress shot down his very own "stimulus" package and after killing off his socialized health care scheme.

So you're claiming that was causal, that the rejection of a stimulus bill led to job creation? When was this bill voted on?

As for "socialized" health care, since it was never enacted, it never had an effect, either positive or negative, on job creation or GDP. To imply that killing it off led to job creation is a little slick.


Clinton talked a bit about the kind of infrastructure and other public works project back then -- the infrastructure was creaking back then too.

But he never pushed for those in any serious way. He bought Greenspan's program about closing the budget deficits -- which he inherited.

The main thing about the budget battles of the '90s was that Clinton and Gingerich had showdowns about the shutdown of the govt. and Newt was the one who blinked.

Clinton got the things he wanted, higher marginal rates, reduction of defense spending. He didn't get "socialized" medicine but that didn't have a material impact either way on govt. finances or the economy in the '90s.

Above all, all that job growth had nothing to do with supply-side economics, which is what the GOP are again advocating, or doing nothing and letting the market correct itself.

Becker and the rest of the Chicago School are talking about how the stimulus won't have the multiplier effect that is expected. Or that any govt. spending will be neutralized by a decline in private investment.

Um, there is very little private investment going on right now, which isn't because the govt. has crowded it out.

What exactly are their suggestions? Monetary policy? Interest rates are almost at zero right now.

[webdanzer]

Oh cool, we've repealed the no politics ban?

Jack's post was like an enema, unleashing an obviously backed-up stream of: 'Bush Clinton Bush Clinton Bush Clinton Bush Clinton' diarrhea...

[JackB1]

Oh cool, we've repealed the no politics ban?

Jack's post was like an enema, unleashing an obviously backed-up stream of: 'Bush Clinton Bush Clinton Bush Clinton Bush Clinton' diarrhea...

Just keep things civil boys and I'm sure all will be fine.
I wasn't trying to stir anything up. Lets keep everything
on an even keel

[XXXIV]

I huff and Ill puff and Ill blow your house down says the big bad wolf...but it is what it is.

[wco81]

Discussion of two long-term projects which have gotten some funding in the stimulus plans: improving broadband infrastructure and electronic medical records.

http://www.slate.com/id/2210835/

Article discusses the pitfalls of each and then gets the perspective of the Cato Institute, which opposes any kind of a stimulus.

On broadband, the situation we have now, a de facto duopoly in most markets consisting of the cable and telcos, is partly due to the lobbying powers of both industries, which have managed to keep out competition.

For medical records, in the absence of a lack of standard, competitors will develop competing and incompatible standards. There will be consolidation and those with weaker financing will drop off.

But already, Microsoft and Google both have attempted to set up competing standards and services so we'll have at least two different formats for the foreseeable future.

Unless the govt. settles on one and can with the volume of Medicare transactions encourage adoption of one standard.

If on the other hand we do as Cato suggests and wait for a winner to emerge, it could be decades before a company like Open Table comes to dominate the market as OT has come to dominate restaurant reservations.

Long-term benefits? Is there any dispute that better telecom infrastructure and modernized medical data-keeping will yield economic benefits on a continual basis?

[XXXIV]

Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth. Below you'll find some recent Cato work on "stimulus" packages.




Link to the petition...

http://vulcanhammer.blogspot.com/2009/0 ... mulus.html

[RobVarak]

In the interest of fairness, WCO, you may want to remind the class that all that job creation in the Clinton adminstration happened after Congress shot down his very own "stimulus" package and after killing off his socialized health care scheme.

So you're claiming that was causal, that the rejection of a stimulus bill led to job creation? When was this bill voted on?

Not at all, and I'm sorry if that's how it appeared. I was suggesting that the job creation happened despite the lack of stimulus and notwithstanding the gloom and doom proclaimed by Clinton through the '92 campaign and his 100 days. More than that, I was pointing out what I feel is an overlooked part of history, and was suggesting that if we're talking about Clinton's economic legacy that it should be included.

[wco81]

The recession was mild compared to what is going on now.

Already, we've had about double the job losses of the early '90s recession if I heard right the other day.

And there's no end in sight.

Demand from both consumers and the private sector has dropped steeply.

It's not just the Detroit automakers which are hurting. All automakers are hurting, as are clothes makers, electronics makers, etc.

Honestly, there are no guarantees that the stimulus will work. Some think it's not enough or it's not front-loaded enough.

But the alternatives -- letting the markets self-correct (i.e. do nothing) or cutting taxes steeply, maybe a payroll tax holiday -- seem even less appealing.

[F308GTB]

A week+ ago I posted about a great NPR story - http://www.npr.org/templates/story/stor ... =100018973 I suggest having a listen. Of particular interest is the section about how economic theory is just that - theory. You can't run an economic experiment in controlled environments. The $800+ billion has no firm foundation to it (if anything, look to Japan's own over-investment in infrastructure by government spending at how its debt is around 170% of GDP). I figure this "stimulus" has a 50/50 chance of working.

Personally I'm of the opinion that market forces and economies are bigger than politics. They are beasts that live in spite of the failures and successes of politics and politicians.

One thing is for sure - if an economy tanks the sitting administration is unfairly blamed. If an economy blossoms, the sitting administration gets unearned credit. Why? Economies are bigger than day-to-day political decisions.

[F308GTB]

More government spending did not solve Japan's "lost decade" in the 1990s.

http://www.nytimes.com/2009/02/06/world ... ?ref=world
http://www.oftwominds.com/japan.html
http://blog.heritage.org/2009/02/06/lea ... g-failure/
http://www.rieti.go.jp/en/rieti_report/038.html
http://www.economicshelp.org/blog/econo ... -in-japan/

Lots of public works projects and a whole lot of debt to show for it.

[wco81]

A week+ ago I posted about a great NPR story - http://www.npr.org/templates/story/stor ... =100018973 I suggest having a listen. Of particular interest is the section about how economic theory is just that - theory. You can't run an economic experiment in controlled environments. The $800+ billion has no firm foundation to it (if anything, look to Japan's own over-investment in infrastructure by government spending at how its debt is around 170% of GDP). I figure this "stimulus" has a 50/50 chance of working.

Personally I'm of the opinion that market forces and economies are bigger than politics. They are beasts that live in spite of the failures and successes of politics and politicians.

One thing is for sure - if an economy tanks the sitting administration is unfairly blamed. If an economy blossoms, the sitting administration gets unearned credit. Why? Economies are bigger than day-to-day political decisions.

The figure isn't something they got by throwing darts at a dartboard with random numbers. They are targeting a certain percentage of GDP.

The federal govt. has been normally about 20% of GDP. I'm not sure how that compares with other nations.

But all industrialized nations are proceeding with stimulus plans and there's also been suggestions for coordination among the nations.

If the economy is too big for any single entity, even a central govt. or a coordination of govts. of the biggest national economies, then you're saying there's nothing to be done about it?

Then again, often the people who argue that POV advocate tax cuts as a way of boosting growth, which belies the claim that the govt. can't influence the economy.

A govt. can certainly affect the economy. It could call for attacks on key infrastructure and that will affect the economy. Adversely but affect it nevertheless.

Conversely, if a govt. had been repressive, not just politically but prohibiting certain economic activity (or denying licenses for example) but then decides to liberalize, as in the case with China a couple of decades ago, the govt. has had a positive impact on growth, although one can argue that the govt. had been holding back economic growth which it simply unleashed.

[F308GTB]

If the economy is too big for any single entity, even a central govt. or a coordination of govts. of the biggest national economies, then you're saying there's nothing to be done about it?

I'm saying government has relatively minimal impact on free market economies. I wouldn't put China up as an example. The American economy would certainly be changed if we all of a sudden went to a dictatorial rule.

My wife summed it up best - economics affects politics way more than politics affects economics.

[XXXIV]

My wife summed it up best - economics affects politics way more than politics affects economics.

Smart lady.